Lifestyle

Refocusing on Digital Cameras

Digital cameras are increasingly easy to use. They've gotten a lot cheaper, too—a boon to consumers, but not to camera companies

Does anyone out there still use film in his camera? Photo film, like typewriter ribbon, television antennas, and leaded fuel, has been reconciled to the dusty storage room of history where all once-cutting-edge technology seems eventually to land. Some diehards still insist on clattering away on their old Remingtons or tooling around the countryside in their vintage Packards, but the rest of us have moved on.

In fact, the digital camera conquest of the consumer photography business has been near-total, as the numbers demonstrate. An April, 2008, report from Forrester Research (FORR) claims more than 6 out of 10 individuals in the U.S. owns a digital camera. There are several reasons behind this rise. First, digital cameras have become easier to use; second, thanks to broadband Internet penetration, more users are able to upload and share their photographs online; and lastly, digital cameras have become a lot cheaper.

Sales Level Off

That's good news for consumers, but it presents a problem for camera makers. Like the computer, another popular device whose success eats into its profitability, digital cameras are in an increasingly mature market, as it nears maximum penetration and its rate of growth slows. (Not to mention increasing competition from constantly improving cell-phone cameras.) The trick now is to enter new markets as well as develop new technologies that will keep existing users coming back.

According to Chris Chute of research firm IDC (IDC), we will "see a gradually maturing market where sales growth gradually levels off—at about 35 million units per year in the U.S., as opposed to 38 million in 2007." He also points out that in 2007, 131 million units were shipped worldwide. This represented a 24% growth rate, compared with 15% in 2006. However, this was a reversal of the trend that has seen the digital camera market experiencing a slowing rate of growth over the previous three years.

He attributes the unexpected jump in sales growth in 2007 to a higher churn rate than anticipated—it seems a consumer digital camera's life span is probably about two years, a lot like the mobile phone, and people replace them on a regular basis. He doesn't expect this to change much, "because at these prices the cameras won't be robust enough to last more than a couple of years anyway."

DSLR Growth

But one subsector of the business has picked up the slack from the now-ubiquitous digital compact camera and is providing the double benefit of stellar growth and fatter margins for the producers—digital single lens reflex cameras, or DSLRs.

Although DSLRs capture only 8% of the global market, according to IDC, their sales grew at a 41% clip last year, almost twice that of digital cameras as a whole.

This is being driven by second- or third-time buyers who are upgrading from point-and-shoot cameras to these more sophisticated models, what the industry calls "prosumer" DSLRs. With an average price of about $800, fatter margins, and a healthy accessory market, DSLRs have really been a boon to manufacturers, particularly Canon (CAJ) and Nikon (NINOF).

Margins are helped by the fact that Canon and Nikon do not need to develop new technology for consumer DSLRs—they just adapt technology originally developed for their professional DSLRs, so these $750 to $1,500 cameras represent a very lucrative business, even if the number of total units shipped is still relatively small.

Shifting Demographics

Originally, it seemed men were pretty much the only ones sporting these status symbols around their necks. But according to IDC's Chute, in the last year the demographics have started to shift toward women as manufacturers have put a lot of effort into producing smaller and lighter models, such as the Nikon D60.

As the compact digital market has matured, cameras have become more alike, boasting the same features that vendors have figured out users want. As Brian O'Rourke, an analyst at Phoenix-based high-tech market research firm In-Stat, points out: "As sales have grown, the photographic knowledge of the typical user drops. It's not the hobbyist area it was six years ago."

Narrowing Choices

So with summer arriving fast, if you're thinking of buying your first digital camera, replacing that old four-megapixel number with the balky flash, or even upgrading to a fancy DSLR, take a look at the accompanying slide show—there is something for everybody there.

We looked at and tested a wide range of cameras from entry-level compact to consumer DSLRs and picked the best, in terms of image quality, features, and usability at a range of price points.

So, whether you're looking for a rugged point-and-shoot to take on the Appalachian Trail (the Olympus Stylus 1030SW) or a DSLR that can capture your kids' sporting achievements at three frames per second (the Panasonic Lumix DMC-L10), you will it find in the slide show.

Nick Passmore is an independent wine writer and consultant based in New York. For five years he contributed a widely read monthly wine column to Forbes.com, in addition to which his work has appeared in such publications as Forbes, Discover, Town Country, the Robb Report, the Wine Enthusiast, Saveur, Sky, and Golf Connoisseur. He is currently Artisanal Editor for Four Seasons magazine and contributes the Nick Passmore: Wine of the Week column to BusinessWeek.com. He is also a judge at the widely respected annual Critics' Challenge wine competition.